Employment status is increasingly important as new ways of working, such as in the ‘gig economy’, become more commonplace. Organisations providing daily services to consumers, such as food delivery and taxis, or providing courier services to other employers, rely on a workforce who may be combining work with education or caring responsibilities, or who just want a better work-life balance, and who wish to work only when they choose to. Employers need to know what their responsibilities are in this new environment, not least because of the legal risks involved if they don’t.

This factsheet explains the legal tests for employment status in the UK, and why they are important for establishing workforce rights. It describes how employment status is defined by case law, and outlines how the law might change in this area as a result of the Taylor report.

The contractual terms on which an organisation engages someone to provide their services or labour is fundamental, and organisations need to determine at the outset whether an individual is an employee, a worker or self-employed. Organisations should set out in writing the terms under which someone is engaged to provide work for it, and communicate these terms to the individual so that both parties are very clear about their employment status and the key employment rights that are, or are not, associated with their status.

Although there is a lot of attention on the rights of people working in the gig economy, confusion about employment status has been a well-established focus of employment tribunal cases for many years. These cases often show that it’s the reality of the working relationship that determines someone’s status and not necessarily what is written down in a contract. This means that an organisation needs to pay close attention to how it manages the relationship with an individual, particularly if they are self-employed. This means being careful not to place expectations on the working relationship that are more aligned with the employment status of ‘worker’.

In UK employment law, there are three principal categories of employment status:

  • employees working under a contract of employment, who have full employment right
  • the genuinely self-employed, who are independent contractors
  • workers who have a status in between employment and self-employment.

But labels don’t determine employment status – that depends on the terms of the contract and how the arrangements operate in practice.

Organisations may have all three categories. For example, a chief operating officer, reporting to the chief executive, and fully integrated within the business, is likely to be an employee. A freelance designer, running their own business, and working for other clients, is likely to be self-employed. Sales representatives, receiving a retainer and commission, may be workers.

There are also other types of status, such as partners, directors and members of limited liability partnerships (LLPs).

Typically employment status issues occur when there is a dispute between an organisation and an individual working for it – otherwise working relationships can continue for years without any certainty about employment status.

Modern working practices, such as zero-hours contracts, and the supply of labour via digital platforms, are bringing employment status under increasing scrutiny. The growth in the 'gig economy' where payment is per job, and workers lack guaranteed hours and job security, has led recently to a stream of tribunal cases.

All organisations need to understand the different employment rights of employees, the self-employed and workers.

Which status applies also has significant tax implications (see ‘Differences between tax and employment definitions’ below).

Employees have the right to:

  • protection against unfair dismissal
  • a statutory redundancy payment after two years’ service
  • statutory maternity, paternity, adoption, and shared parental leave and pay, and statutory sick pay
  • TUPE protection (during a transfer of undertakings)
  • minimum statutory notice, a written statement of particulars within eight weeks of the contract start date, and an itemised pay slip
  • request flexible working
  • paid time off for trade union duties and for ante-natal care, and unpaid time off to deal with emergencies for a dependant.

Both employees and workers are entitled to:

  • National Minimum Wage/National Living Wage
  • working time rights, such as weekly and daily statutory rest breaks, and a 48-hour maximum working week (although they can choose to opt out and work for longer)
  • a companion during a disciplinary or grievance hearing
  • protection from discrimination and from mistreatment following whistleblowing
  • protection from unlawful deduction from remuneration
  • health and safety protection
  • auto enrolment on to a pension scheme
  • paid annual leave.

Self-employed contractors have no employment rights, apart from:

  • health and safety protection
  • protection from discrimination (in some cases) and from mistreatment following whistleblowing.

CIPD members can find out more in our Employment status law Q&As.

The self-employed pay their own tax and national insurance. Businesses must deduct income tax and National Insurance (NI) contributions, and pay employers’ NI, for both employees and workers.

But the legal tests for tax purposes and to determine employment rights are not the same, so an individual may be taxed as an employee but not have full employment rights.

The ‘worker’ concept only exists in employment law, and is a catch-all category used to provide those who would otherwise be self-employed, but who have some employee characteristics (such as a degree of control by the business), with meaningful legal rights.

Employees work under a ‘contract of service’; the self-employed work under a ‘contract for services’. Workers provide services personally to an organisation but under an arrangement that is looser than employment.

The principal statutory definition of a ‘worker’ is found in section 230(2) of the Employment Rights Act 1996.

Courts and tribunals have largely determined the tests for deciding whether someone is an employee, a worker or self-employed. Factors indicating employment include an individual:

  • having to perform the work personally
  • having to carry out the work when required (and the organisation must also be obliged to provide it)
  • being integrated within the business (for example, by being part of a team)
  • being controlled by the organisation in the way the work is done.

Courts will also look at whether the nature, length and pay and benefits of the engagement are consistent with other employees in the organisation.

The dividing line between employment and self-employment can be blurred, but factors suggesting self-employment include individuals:

  • actively marketing their work outside the organisation, being able to decide how it is done, and (possibly) providing a substitute to carry it out
  • not being integrated within the business, or subject to a high level of control
  • supplying their own equipment
  • accepting the risk of not being paid if the work is not done
  • submitting invoices for payment
  • having no obligation to accept work.

Workers tend to have some of the characteristics of both, and the definition of a ‘worker’ has been further embellished recently by a number of gig-economy cases. Claims brought against organisations such as Uber, Pimlico Plumbers and CitySprint have concerned whether the claimants were genuinely self-employed, or workers. Generally these workers could not be employees because they could choose to work when they wanted to, or work no hours at all.

Since the Supreme Court’s decision in Autoclenz Ltd v Belcher (2011), the courts are more willing to look beyond what the contract says (and the labels applied to each party) to how the relationship worked in practice. For example, in Aslam v Uber BV (2017), the employment tribunal and Employment Appeal Tribunal saw past the documentation, and found that Uber drivers were workers despite the contracts saying the opposite. The company has appealed this ruling to the Court of Appeal.

In Pimlico Plumbers Ltd v Smith (2018), the Court of Appeal, and subsequently the Supreme Court, also emphasised the importance of the reality of the working relationship regardless of contractual terms. The courts found the claimant was not self-employed, as the company maintained, but a ‘worker’ and, therefore, entitled to working time rights.

Organisations currently using a range of contracts, such as fixed-term, agency or zero-hours contracts, should consider whether these are still the right choice in terms of flexibility of resource, and the need for stability by those working for them. It is good practice to ensure that all workers, or those on varying contracts, are aware of any vacant positions within the organisation, so they can apply for more stable contracts, if they so wish. This is a legal requirement for employees on fixed term contracts.

Statements of written particulars are required in the case of employees and must stipulate what rights they are entitled to. It would be good practice to provide these for workers too, and this could become a legal requirement under proposals currently being considered by government. Employers are legally obliged to provide an itemised pay slip for employees, and this will become a legal requirement for workers as well from 2019 (see below).

Organisations may have inserted an opt-out clause in relation to maximum working time in their employment contracts, but they should remember that this does not exempt employees or employers from their duty of care under health and safety legislation.

Our Contracts of employment factsheet has more on contracts and the written statement of particulars.

This area of law is likely to continue to change in the next few years, both as a result of the courts’ response to the new working practices typified by the gig economy, and new legislation.

The Taylor review of modern working practices was asked to look at how government should respond to the new models of working (read our response). In autumn 2017, the Work and Pensions and the Business, Energy and Industrial Strategy Parliamentary Committees published their own report, A framework for modern employment, which included draft legislation implementing some of the Taylor review’s recommendations.

In February 2018, the government responded to both reports, accepting most of the recommendations, and issuing four consultations, one of which concerned employment status.

Clarifying employment status definitions

The government has proposed that ‘worker’ status should be retained, but is consulting on how to make the definitions of worker, self-employed, and employee clearer. It is asking whether the existing case law tests should be put into legislation, whether new tests should be developed, and whether the definitions should be aligned for employment rights and tax purposes.

While there is no proposal to reduce the difference between the tax and NI contributions of employees and the self-employed, the government’s overall tax take could increase if independent contractors are re-categorised as workers or employees.

The Taylor report recommended that gig economy workers, operating through online platforms, should be entitled to a piece rate under the NMW, and one of the consultations is looking at how to define this type of working under the working time rules. The Low Pay Commission has been asked to explore the impact of introducing a higher NMW rate for hours not guaranteed as part of the contract.

Enforcement

The government agrees that the state, rather than individuals, should be responsible for enforcing core employment rights, such as NMW, sick pay, holiday pay and unlawful deductions, for the lowest paid employees and workers, and plans to gather evidence on the scale of the problem. There is to be more targeted enforcement activity to stamp out “illegal and exploitative” unpaid internships, and confirmation that interns classed as workers and/or employees must be paid the NMW.

The government has suggested there should be a simpler way of enforcing tribunal awards (including ‘naming and shaming’ organisations that do not pay) and stronger penalties for employers that ignore previous tribunal judgments. This is likely to result in higher tribunal awards in the future against organisations that do not act on a tribunal ruling against them on employment status.

Statement of contract terms

New legislation has been introduced in Parliament giving workers the right to itemised pay slips from 6 April 2019. Employees already have this right. The government has also agreed that workers should have the right to:

  • a statement of their key terms (as employees do)
  • request more predictable and stable contracts, especially those on zero hours contracts and agency workers.

Consultation is taking place on how best to achieve both of these, and on the Taylor report’s recommendation that continuity of service should be preserved if there is a gap in employment of less than one month (currently one week’s gap breaks continuity).

Contacts

Acas – Employment status 

GOV.UK - Employment status 

HMRC - online tool to check a person’s employment status for tax 

Journal articles

Determining employment status. (2017) Labour Research. Vol 106, No 1, January. pp16-18.

Employment status in the 21st century. (2018) IDS Employment Law Brief. No 1090, April. pp11-18.

MIDDLETON, J. (2018) What we know about employment status. People Management (online). 9 August.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.

This factsheet was written by Jane Mann, Fox Williams LLP, Rachel Suff (for the CIPD viewpoint) and other members of CIPD staff.

Jane Mann

Jane Mann: Fox Williams LLP

Jane Mann is a partner at City law firm Fox Williams, where she heads up the firm’s employment/HR law team, which was shortlisted for its human resources work in the Legal 500 Awards 2018.

Jane advises both organisations and senior executives, with particular emphasis on those from the technology/gig economy, financial, insurance and professional services sectors. She combines extensive experience of defending employers facing employment claims, with business/legal advisory work, and is an expert on cross-over employment and regulatory issues. She has often had to advise organisations on business critical issues, such as the employment status of their workforce. She co-founded the Employment Lawyers Association, and is associated with many leading employment and HR groups.

Rachel Suff

Rachel Suff: Employee Relations Adviser

Rachel Suff joined the CIPD as a senior policy adviser in 2014 to help shape the public policy debate to champion better work and working lives. Rachel is a policy and research professional with over 20 years’ experience in the employment and HR arena. An important part of her role is to ensure that the views of the profession inform CIPD policy thinking on health and wellbeing and employment relations. She has recently led a range of policy and research studies about health and well-being at work, and represents the CIPD on key advisory groups, such as the Royal Foundation’s Heads Together Workplace Wellbeing programme. Rachel is a qualified HR practitioner and researcher with a master’s in Human Resource Management from Portsmouth University and a post-graduate diploma in social research methods from Sussex University; her prior roles include working as a researcher for XpertHR and as a senior policy adviser at Acas. 

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